Alight Inc

NYSE:ALIT

Earnings Call Analysis

Alight's Q3 Reflects Revenue Growth and Raised EPS Guidance

In Q3, Alight achieved an impressive 8.4% revenue growth, with their BPaaS Solutions leading the charge at a 22% increase. The company is successfully transitioning from one-time project revenues to a platform-based model with higher quality, recurring revenues, as evidenced by their $262 million in BPaaS bookings, up from 26% last year. This shift has also allowed for cost reduction and improved margins, with adjusted EBITDA up nearly 19% to $158 million. Year-to-date, operating cash flow has jumped 25% from the previous year, indicative of heightened profitability. With over 95% of 2023 revenue already under contract and a robust pipeline, Alight reaffirms its guidance for 2023 and the midterm, also raising its 2023 adjusted EPS guidance. The company's ongoing investments in technology, platform strategy, and backend simplification aim to enhance client value and drive future growth. Financial benefits from restructuring efforts are expected to be realized by late 2024 with a full annual run rate savings of $100 million projected for 2025.

Transformation into a Platform Company Yields Strong Financial Results

Undergoing an evolution over the last three years, the company has seen its transformation into a platform-centric organization manifest in both strong financial performance and significant booking growth. Investors would note with interest the company's expansion of operating cash flow. With an 8.4% revenue growth and an impressive 26% year-over-year increase in Q3 BPaaS bookings, the company's strategic shift from project-focused business to recurring revenue streams on the Alight Worklife platform has proven to be both lucrative and a firm move towards sustained economic solidity.

Robust Revenue Contracting Instills Confidence

Looking forward, the company has already secured over 95% of its revenue for 2023 and boasts $2.7 billion under contract for 2024. Such strong pre-bookings not only offer a clear visibility in the revenue stream but also allow the company to reaffirm its mid-term guidances and even raise its 2023 adjusted EPS guidance, underscoring management's confidence in the firm's continued profitability.

Operational Efficiencies Redefine Client Experience and Profitability

Operational enhancements, such as reduced call volumes due to increased digital care, have played a critical role in driving profitability. By integrating management services into the platform and harnessing AI for client engagement, the company anticipates $100 million in annual run rate savings by 2024. These strides signal not only growth but also a stronger competitive edge and commitment to providing a better experience for clients.

Long-term Strategic Investments to Fuel Future Growth

With the near conclusion of its original three-year plan, the company has prepared the ground for future endeavors. The investments in BPaaS and operational initiatives are viewed as fertile soil for enhanced margin expansion and cash flow generation, something that investors interested in long term viability would find encouraging. This poised positioning stems from a clear goal to be the go-to partner for corporations as part of a growing market demand for cost reduction without sacrificing employee experience.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, and thank you for holding. My name is Judith, and I will be your conference operator today. Welcome to Alight Third Quarter of 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded, and a replay of the call will be available on the Investor Relations section of the company's website.

I would now like to turn it over to Jeremy Cohen, Head of Investor Relations at Alight to introduce today's speakers.

[Jeremy Cohen, executive]

Good morning, and thank you for joining us. Earlier today, the company issued a press release with third quarter 2023 results. A copy of the release can be found in the Investor Relations section of the company's website at investor.alight.com.

Before we get started, please note that some of the company's discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in the company's filings with the SEC including the company's most recent Form 10-K as such factors may be updated from time to time in the company's periodic filings. The company does not undertake any obligation to update forward-looking statements.

Also, during this conference call, the company will be presenting certain non-GAAP financial measures. Reconciliations of the company's historical non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's earnings press release. On the call from management today are Stephan Scholl, CEO who will provide a business and strategy update; Katie Rooney, Global CFO and COO, who will discuss our financial performance and guidance; and Jeremy Heaton, Operating CFO, who will participate in our question-and-answer session. After their prepared remarks, we will open the call up for questions.

I will now hand the call over to Stephan.

[Stephan Scholl, executive]

Thanks, Jeremy. Good morning, everyone, and thank you for joining us. Nearly 3 years into our transformation journey, we're delivering consistent and durable financial results, reflecting the mission-critical nature of our products, the resilience of our end markets and more importantly, the success of our transformation into a platform company. This quarter, we drove high single-digit revenue growth, double-digit adjusted EBITDA growth, operating cash flow expansion and achieved our second largest quarter ever of BPaaS bookings. At the same time, we are investing in our platform strategy, delivering on our restructuring program and executed our largest quarterly stock buyback to date.

Turning to the results. Our third quarter included revenue growth of 8.4% and another outstanding quarter from the high-growth category of our business, led by BPaaS solutions, which had revenues increased by 22%. Over the past 3 years, we have prioritized our long-term strategy, shifting the focus from onetime projects into higher quality recurring revenue on our Alight Worklife platform. This is reflected in our $262 million of Q3 BPaaS bookings, representing an increase of 26% year-over-year. In aggregate, we have now booked nearly $2 billion of BPaaS total contract value since 2021, $0.5 billion or over 30% ahead of plan.

Standardization through our platform strategy also enabled us to drive down our cost of service. For the quarter, adjusted EBITDA was up nearly 19% to $158 million. An year-to-date, operating cash flow increased 25% from the prior year to a record level for Alight since going public. While we delivered great results for the quarter, timing related to project-based revenue as well as the in-year impact from new wins, closing later than expected impacted the quarter. However, we have over 95% of revenue under contract for 2023, $2.7 billion of revenue under contract for 2024 and are $500 million ahead on our 3-year BPaaS bookings target, which enables us to reaffirm our 2023 and midterm guidance. In addition, we are raising our 2023 adjusted EPS guidance range.

Turning to product and technology. Our investments are driving a simpler and more effective way to navigate the annual enrollment experience. As of October 25, we are nearly 50% of the way through the process and have seen a tripling in mobile enrollments year-over-year. This is translating into reduced call volumes, which are down 11% over the same period last year. The reduction in call volume is a key element driving long-term profitability as digital care will continue to drive more efficiency and a better experience for our clients. Additionally, we've made great strides integrating the lease management more deeply within the Alight Worklife platform and have added new features to drive better content and decision support.

Our research and client conversations continue to validate that there are gaps in the market around a consumer-grade experience integrated into HR platforms. We have several active client engagements where we're showcasing the powerful combination of leaves with our other administration and engagement offerings and how that can drive significant savings for an employer. We're also excited for how AI is advancing our business, including a number of generative AI use cases underway this year alone. As an example, Alight's AI features are actively driving better outcomes for clients and their employees with personalization emerging as a pivotal tool for enhancing engagement and cost optimization. One Fortune 50 client seeking to boost HSA participation, leveraged a highly efficient AI-driven campaign which resulted in 95% engagement of the eligible population and close to $1 million in employer tax savings.

Our product enhancements are differentiating Alight and translating into new wins and expanded relationships that support our future growth. These wins represent a healthy mix of new logo and client expansions across many industries, and our pipeline remains robust. Significant wins this quarter include FedEx, Nielsen IQ, BMW and several Fortune 100 clients. Clients want a digital platform that can be the connective tissue between benefits, payroll and engagement offerings, and we accomplished that by leveraging AI and data analytics to help employees make better decisions. At its core, that is what our platform strategy is producing, a simplified yet comprehensive enterprise offering that can demonstrably improve employee engagement and generate cost savings.

During the quarter, we also made progress simplifying our back-end infrastructure and are on track to deliver on our restructuring program as planned. This includes migrating high-priority applications, including our data lake, which should better enable us to leverage analytics and the latest developments in AI, and deliver $100 million of annual run rate savings when the program is complete in 2024. Finally, let me put into context what our transformational initiatives and investments have meant for the long-term trajectory of Alight.

In just a few months, we will have successfully concluded our original 3-year plan. The success of BPaaS and our many operational initiatives have laid the groundwork for delivering even more value in the midterm including higher growth through a compelling client value proposition as a result of building our Alight Worklife platform.

Next, margin expansion. As we move from customization to standardization and simplified decades of tech stack while still offering the all-important personal touch when needed. And finally, enhanced free cash flow generation to reinvest in the business, strengthen our balance sheet and return capital to shareholders. We see the market undergoing a paradigm shift where corporations are looking for a partner to be on the front lines with them to help take costs out while simultaneously providing a better employee experience. As a result of our transformation, we are well positioned to be their partner of choice.

With that, Katie, over to you.

[Katie Rooney, executive]

Thank you, Stephan, and good morning, everyone. We showed strength across the Board with our third quarter performance, including robust total revenue, BPaaS revenue, adjusted EBITDA and operating cash flow growth. All while continuing to invest in the business. In addition, we delivered one of our best BPaaS bookings quarters in company history. Starting with our consolidated results. We achieved revenue growth of 8.4%, highlighted by our high-growth category of BPaaS solutions, which advanced 22%. Timing related to project-based revenue as well as the in-year impact from new wins closing later than expected impacted this quarter's revenue growth. Recurring revenue grew 8.3% and comprised over 83% of total revenue.

Adjusted gross profit was up 20%, with significant margin expansion of 340 basis points to 35.3%, driven by productivity savings and higher revenue. Adjusted EBITDA increased 18.8% to $158 million with a margin of 19.4%. This represents a 170 basis point increase from the prior year. Our increasing level of profitability, coupled with working capital improvements are generating stronger cash flow even as we simultaneously execute on our restructuring program.

Year-to-date, we generated operating cash flow of $251 million, which is $50 million more than the prior year and represents a conversion rate of 54% compared with 48% last year. And as a reminder, spending on our restructuring program will temporarily slow in Q4 as planned during annual enrollment, and we expect to resume activities in the new year with target program completion scheduled during 2024. We expect to start seeing financial benefits in late 2024 with full annual run rate achieved in 2025.

Turning to our bookings performance. We delivered record third quarter BPaaS bookings of $262 million, representing growth of 26% year-over-year. Our value proposition of driving better outcomes is resonating with employers and the intensity of conversations remains elevated. We continue to see strong demand for our solutions, particularly in an environment where employers are more acutely looking to reduce costs and achieve better ROI for their HR spend. As I spend more time with clients in my expanded role, this dynamic is becoming more obvious. The C-suite is more engaged in this budget season in addressing macro pressures, but doing so in a way that doesn't sacrifice the employee experience. This is enabling us to build our pipeline with new logo and upgrade opportunities.

With that, let me now turn to our segments, starting with Employer Solutions. Third quarter revenue was up 8.7% with recurring revenue up 8.7% as well. Key drivers of growth include overall net commercial activity from upgrades and new wins, volumes and the impact from the ReedGroup acquisition, which closed in December of 2022. There was no incremental impact from [ Thrift ] this quarter. While we typically see higher upfront costs in Q3, supporting Q4 growth, we drove better profitability due to our productivity initiatives. As a result, third quarter adjusted gross profit was up 21.5% to $260 million, and adjusted gross margin increased 390 basis points to 37.1%.

Turning to our Professional Services segment. Third quarter revenue growth accelerated sequentially and was up 10.5% to a record $105 million. This was driven by a nearly 10% increase in project revenue due in part to the implementation of our GE deal and a nearly 13% increase in recurring revenue. On a profitability basis, adjusted gross profit was up 8% from the prior year, with margins impacted slightly by higher personnel costs to support the growth.

Turning to the balance sheet. Our quarter end cash and cash equivalents balance was $276 million and total debt was $2.8 billion. We continue to actively manage our debt, which is 84% fixed through 2024 and 60% through 2025. During the quarter, we completed an opportunistic repricing of our 2028 term loan. The result is an improved interest rate of 25 basis points, equating to $6 million of expected annualized interest expense savings.

We are updating our expected 2023 interest expense to a range of $130 million to $135 million, down from $140 million to $150 million, given market rates and the repricing. Meanwhile, our net leverage ratio continues to improve, and at the end of the quarter was 3.6x, keeping us on track to achieve our midterm net leverage target of approximately 3x. And lastly, we were also active buyers of our stock, repurchasing $26 million worth of shares during the quarter. Our remaining authorization was $48 million at quarter end. Overall, we continue to be disciplined in our capital allocation priorities and on achieving success across our 3 key pillars: for serving a strong balance sheet, reinvesting in growth opportunities and returning capital to shareholders.

Turning to our outlook. As we look to finish out the year, we are closely monitoring the macro environment and sales activity of our nonrecurring solutions. As in prior years, Q4 revenue carries a larger contribution from short-term projects, commissions within our retiree health business and professional services, all of which have a shorter sales cycle through the enrollment season. However, with more than 95% of revenue under contract, we are reaffirming our 2023 revenue, adjusted EBITDA and cash flow conversion guidance. We're also raising our adjusted EPS guidance range. Our adjusted EPS is now in the range of $0.65 to $0.69 compared to the prior range of $0.62 to $0.67 or growth of 14% to 21% and primarily reflects the expected decrease in interest expense.

Overall, our third quarter results, which included strong growth, great bookings and even better profitability are a reflection of our transformation has been so important. By developing the Alight Worklife platform, we have set a course to continue winning in the market and delivering sustainable and profitable growth. We look forward to building upon the momentum as we deliver a better experience for our clients and their employees.

This concludes our prepared remarks, and we will now move into the question-and-answer session. Operator, would you please instruct participants on how to ask questions.

[Operator]

[Operator Instructions] Our first question comes from Scott Schoenhaus of KeyBanc Capital Markets.

[Scott Schoenhaus, analyst]

I first wanted to talk about the BPaaS bookings, a nice reacceleration and Stephan, clearly, you talked about kind of being lumpy with being pushed out from 2Q into 3Q. I'm just kind of wondering if you can give more commentary and this is also for I guess, for Katie as well since Katie did talk about the strengthening demand for the product offering and given the macro conditions.

But what are you seeing in terms of the pipeline? Is it more accelerated interest on the international side with global enterprises and sort of -- kind of delayed in signing the deals? Or just kind of give us more color on what you're seeing in your pipeline currently, I know you mentioned it's broad-based in the press release, but just kind of looking for more color here as we approach year-end on the BPaaS bookings.

[Stephan Scholl, executive]

Sure thing. Scott, I hope you feel better. And listen, we've talked about this now for the last few years, which is this best-of-breed to enterprise or the platform is really resonating with our clients. And it has to do with the macro environment, every client, every CEO I talk to is looking for ways to consolidate and simplify and take cost out. And as you all know, the HR realm is the last holdout of that big transformation that so many companies have lived through for the last 20 years around how to deal with clients and their customers that never happened in the employee landscape.

So when you see some of our biggest deals, it's where they're coming to us and saying, listen, we're coming out to RFP for some of these niche products or what I would call transactions, but we want to take a broad review and that broader view is a platform approach. So how do you consolidate benefits with navigation, global payroll into one overarching approach. So some of our biggest deals last quarter were exactly in that vein. So that's what's exciting for us. And we're seeing a lot more activity from CEOs and especially CFOs and the CIO ranks that are now spending a lot more time with their client -- with their HR constituents to really spend the effort to help drive that enterprise consolidated type of an approach. So that's right in our wheelhouse for us.

[Katie Rooney, executive]

Yes. And Scott, I think the only thing I'd add is, you're right, like we named Nielsen IQ in the quarter, which was a fantastic opportunity that the team really did an excellent job landing in terms of Nielsen was going through a merger, obviously, with kind of a big acquisition, and they needed a kind of a global view into the payroll landscape, how that all comes together, right, how they have a better experience, drive down cost. And so I do think there's great demand in that space.

[Stephan Scholl, executive]

And I think maybe one more piece is we've beaten our largest competitors on some of these big competes because we've been able to change the narrative from a best-of-breed rather than just a global payroll against global payroll decision or BenAdmin -- for BenAdmin, so it's because the 2 come together, and we're the only ones who have the 2 that has really been a strategic advantage in our win rates coming up as well.

[Scott Schoenhaus, analyst]

And then my follow-up is on margins. Clearly, a great margin quarter. And Stephan, I thought it was interesting you mentioned about the open enrollment season navigating people towards doing it on their mobile phone rather than a call center and saving money. Is that included in these productivity initiatives? Just curious on the breakdown because that obviously should continue in the fourth quarter for the open enrollment. And just kind of wanted to think about how to frame all these cost initiatives into next year, but great margin performance this quarter.

[Stephan Scholl, executive]

Yes. And thank you, Scott. And to your point, again, I just talked about the advantage to customers. The advantage to Alight, as you can see, is the tripling of our mobile usage. You can see enroll again, it's halfway through now. But to see double-digit reduction in our call center calls, I mean that's bending the curve on our cost structure. We've talked about that for years. And that was just never possible. Our headcount always went up for the last 30, 40 years to serve that need and to see it now go down and the needs in terms of resources needed to serve a much larger population than we even had 3 years ago because, as you know, with the major wins we've had. We've added millions of participants to our platform, and we have less people servicing that base than we did a few years back, and that is all to do with the front door experience of Alight Worklife and creating a much better experience. So again, early days, but super good progress for us, and we're super excited about it.

And then maybe, Katie, on.

[Katie Rooney, executive]

Yes. And I think -- I mean, how to think about that is remember, we actually talked about this a year ago where we started to see some of that momentum. You almost have to think a year out, right, because then based on the performance last year, we could staff accordingly this year. Now what we're seeing continued reductions plus, obviously, with our restructuring program, we're also changing the infrastructure in terms of how we staff for peak levels. We have more variability, which will help us going into next year as well. So that is definitely a driver of the continued margin improvement.

[Operator]

the next question comes from Peter Heckmann of D.A. Davidson.

[Peter Heckmann, analyst]

Could you talk a little bit about your implementation schedules. I know you have some very large logos in the pipeline. Some of those go live in '24, some will go live in '25. Are you feeling like you're on schedule with those? Are you finding the right people to hire and retain they can implement those projects?

[Katie Rooney, executive]

Yes. It's a great question, and I think it's super important to what we're driving. I'm going to ask Jeremy to touch on that.

[Jeremy Heaton, executive]

Yes, we're seeing great progress in terms of implementations. As we've talked about, GE being a very large deal goes live here at the beginning of 2024 for part of it and fully live in 2025. And just the same technology that Stephan just talked about, that's helping us through the annual enrollment period that the tech infrastructure, the standardization we have in the technology is going to continually allow us to create capacity for more larger deals as well as to go live faster. So we're -- everything is on track that we've talked about, and we're continuing to see, again, acceleration in terms of the implementations of our deals.

[Peter Heckmann, analyst]

Good. That's good to hear. And it feels as if wage inflation has come off a little bit, but I mean, how are you thinking about the measure of employment cost index relative to your ability to pass through some pricing in 2024?

[Katie Rooney, executive]

Yes, Pete. I mean -- so you're right. As of September 30, the employment cost index was at 4.5%. So still kind of a small benefit in terms of where we're going, but really also a driver of how we're trying to change our pricing model in terms of -- we've talked a lot about, right, getting value for the services and the investments we're making from a technology perspective while also being clear on the importance of our service delivery capability and really bifurcating both of those. So I think it's obviously still impacts the business, but I think is an opportunity for us to continue to drive value for the investments we're making.

[Operator]

The next question comes from Tien-Tsin Huang of JP Morgan.

[Tien-Tsin Huang, analyst]

Just the timing of the in-year revenue that impacted the results in the quarter, did you quantify that? And is that a client side issue just with them being a little more cost conscious, curious how broad-based that was as well?

[Jeremy Heaton, executive]

Let me -- I'll take that one, Jeremy. So just to clarify, as we've seen the notes this morning, just this was -- we were -- the impact, let's call it, $15 million in the quarter is primarily in our nonrecurring project revenue within Employer Solutions. So very minimal really, as you think about really where our focus is on the high-value Employer Solutions revenue, the recurring revenue, very minimal impact in terms of in-year. But this is more of as we ramp through annual enrollment, that nonrecurring base, which again, is a big driver for us as we look and going into Q4 is really where we saw some of that impact.

Once again, on the larger transactions, what drives the recurring revenue base, that's really the focus of the 22% that you saw in the BPaaS revenue growth within the quarter. But again, 95% under contract for the year and have a good plan in front of us and what we can see from a visibility standpoint in terms of getting through 2023 and no impact importantly as well as you're thinking through 2024 in the midterm outlook because once again, $2.7 billion under contract, it's a record for us through the third quarter. And so I feel really great in terms of where we are from a bookings perspective there.

[Tien-Tsin Huang, analyst]

And when you talk about 95% of the business under contract at this point, we're at November 1, I would imagine that...

[Jeremy Heaton, executive]

As of the end of the third quarter.

[Tien-Tsin Huang, analyst]

And so I know that year-end has a little bit more in the way the nonrecurring. Any additional comment on visibility there? And I know based on the range of the outlook, it sounds like it's reasonably visible.

[Jeremy Heaton, executive]

Correct. Correct. Yes, again, like the shorter sales cycle, as Katie mentioned, so there's really 3 aspects within the fourth quarter, which drive that nonrecurring base, which is the project work within Employer Solutions, our Professional Services Deployments as well as the Retiree Health business. But again, we've got the pipeline. We've got a track record of being able to execute within the fourth quarter. And really, those are the elements for us in terms of reaffirming the '23 guidance.

[Stephan Scholl, executive]

I think one key piece just to pull that out is within Employer Solutions, the high-value ARR type business that has continued to see really good strength. And that's what gives us the confidence into not only Q4, especially but into '24 and our midterm guidance to continue to support that.

[Tien-Tsin Huang, analyst]

Right, just a quality side. I get it. So just one more, if you don't mind. I apologize for the third question. Just on the BPaaS bookings side. I know it was asked, but it looks like you need about the same amount you saw in the third quarter to get to midpoint for the full year. So same question on visibility there, and I can't recall how fourth quarter from a seasonality standpoint is important here, including what happened last year in the fourth quarter?

[Jeremy Heaton, executive]

Sure. Sure. Yes. So typically, what we've seen is there is a ramp through the second half of the year in terms of bookings. Last year, obviously, we had the large GE transaction, which drove Q4 but again, pipeline is robust for us. We feel great in terms of performance and what we saw in the third quarter, and there's plenty of deals and opportunities that are out there and what we're seeing from an overall demand environment in terms of feeling good -- going into the fourth quarter and where we're at. It's tough to see -- every deal is binary and it can -- days or weeks can determine what goes within the quarter for an actual -- the bookings number itself. Typically, we do see it kind of step up into the fourth quarter. But again, we'll take it deal by deal, but the pipeline is strong.

[Stephan Scholl, executive]

Yes, the price is strong U.S. domestically and internationally. So I think it's a good -- what we're seeing is a good cross-section of strong pipeline around the world. And what I think is exciting for us, Tien-Tsin, is again, you know our footprint, right? We deal with a lot of large scale Global 1,000 clients. And what's exciting to see at Board level and CEO level is a continued trend towards saying stopping the rogue spending by division or by department or by geography. So you're seeing a lot of senior executives saying, stop the U.S. making their own decisions or international.

So we're playing that real strength into the more enterprise platform consolidated sales campaign, which plays to our strength because as you know, most of our competitors can't really do a lot of international capability like we can. So that's our strength. The harder part, of course, on that is as Jeremy just said, these are lumpy and these are really big deals, and it takes a lot of the individuals, not just the CHRO and the divisional department involved. You now have CFO and CIO and CEO in many cases, heavily involved, but the pipeline is stronger than we've seen in a long time.

[Operator]

The next question comes from Kyle Peterson of Needham & Company.

[Kyle Peterson, analyst]

Wanted to touch and surround on macro. Obviously, good to see strong bookings quarter. But maybe if you could just touch on like -- maybe how macro is kind of factoring into whether it's client conversations or time line to get some of these bookings across the finish line? Any more color as to kind of how that's playing into quiet decision-making would be helpful?

[Katie Rooney, executive]

I think we haven't seen a significant change in the demand environment is what I'd say overall, you kind of heard that in both Jeremy and Stephan's comments earlier. There's a continued need and I said it in some of my remarks earlier as well that we're seeing with the C-suite, especially going into budget season next year that they are taking, right, kind of a full broader look at their spend, at the employee experience, how do we continue to improve that while also being conscious of the outcomes they need to drive, and that's a real opportunity for us. So we're spending a lot of time with making and improving those use cases that enable our clients to move.

So these are tougher conversations. You've seen our sales cycle is longer. But in terms of overall demand, kind of the large deals we see in the pipeline, those continue to build. It's now about execution and getting them over the line.

[Stephan Scholl, executive]

And maybe, Kyle, I mean, I've said a lot of it to tension earlier, but maybe a different element to it is -- I had a CEO dinner a couple of weeks ago. And what was interesting how one CEO of a large company framed it up and says, "Listen, I spend about $300 million of administrative systems spend across Workday and Alight and the vendor community. " But that $300 million spend actually equals $2 billion of impact to my company. That's the TAM we're dealing with. When you start thinking about employee engagement, the cost of employees, it's claims data, attrition data, most of our clients are -- that cost begins with [ beat ]. And so if you're thinking about solving that $300 million problem. That's more transaction oriented. The platform approach is what solves the $2 billion problem.

So we're connecting the dots a lot better for a CEO on where is your spend going? Why is the attrition happening? A lot of our clients are dealing with really big attrition in their first year of having employees on board, why is that? And the category of well-being and benefits and support is a big topic that's kind of not so clear to a CEO. So it's really solving that $2 billion problem has been really exciting for us because, again, it puts us in a unique position because of our capability to bring so much of the content to bear, but do it in the context of Alight Worklife. And I think that's been what's unique for us.

[Kyle Peterson, analyst]

Got it. That's really helpful color. Just a follow-up on kind of use of cash here. Great to see you guys stepped up the buyback a little bit in third quarter, but how should we think about how you guys are balancing whether it's the buyback and what the stock, where it is? Or has the M&A pipeline and how are you balancing those opportunities?

[Katie Rooney, executive]

We're looking at all, as we always do, right? And we're taking a return on capital approach as we think about the best opportunities for us. You saw in the quarter that not only did we strengthen the balance sheet with repricing our debt, we obviously bought back shares more aggressively than we have in any quarter. And at the same time, we will continue to look at investing into the business. That's a key priority for us, but we know we have to get that trade-off right. And we've obviously been very disciplined this year, as you've seen from an M&A perspective given where valuations sit and what we think we can do in terms of partnerships and kind of some of the organic builds we're doing across our product pipeline. So we'll continue to focus on getting that balance right and coming at it from a return perspective.

[Operator]

Our next question comes from Pete Christiansen of Citi.

[Peter Christiansen, analyst]

We're actually getting a bunch of questions. I think it's really the one gap at least versus consensus estimates was on the recurring ES recurring revenue side. I realize it was a tough comp, but it did decline sequentially. Just was wondering if you could provide a bit more context on the performance there. And then as my follow-up, I know Stephan, you called out some interesting stats on the enrollment season so far certainly on the operating side, but just wondering if you had any early color on benefit attachment rate and any changes there?

[Jeremy Heaton, executive]

This is Jeremy. I'll take the first part of your question. So just to clarify again on the revenue question, within Employer Solutions, what we saw was we were a bit lighter on the nonrecurring side of it, just as you think about expectations and what you're seeing and possibly getting notes in on is in the nonrecurring project revenue business sitting within employer solutions. So that's the important piece there.

Sequentially, again, what we talked about, right, is just in the plan that we had this year was growth year-over-year was front-end loaded, driven by the thrift contract which had its 1-year anniversary last quarter. And so that's the driver of sequential change, but again, all within our plan and internal expectations and part of the guidance that we gave for the year. Is that helpful?

[Peter Christiansen, analyst]

Yes. Thank you.

[Jeremy Heaton, executive]

And then just -- because I said a lot -- I'm not sure I fully understand the second question. Say it again, benefits attach, I'm not sure understood that part?

[Peter Christiansen, analyst]

Sure, yes. So I mean, obviously, the 50% through the enrollment season. You called out some neat things on the operating side, reduced call volumes, so on and so forth. Just curious if you're seeing any other changes, at least on, I guess, the revenue side with benefit attachment rates, some of the other payroll providers have called out weaker health insurance attachment and those types of things. Perhaps related to inflation, those types of things. Just curious if there's any takeaways that you've noticed already from the enrollment season so far?

[Stephan Scholl, executive]

Yes. I think what the tripling of mobile really speaks to taking something that's really complicated. Listen, we're all employees at the end of the day, right? So when you log in, this is not intuitively the last 30, 40 years in an easy experience. My goal and the team's goal here with product engineering has been to really simplify the experience. So maybe to your point, if I'm answering this the right way, let me know, but the tripling of mobile use and the ability to have our call center reduction by double digits speaks to now making that experience a much more intuitive, easier experience for employees.

That has to be the goal because our point of -- our platform is engaging these employees not on an annualized basis, but on a weekly basis or a daily basis, when we start connecting more of the data sets across the clinical elements, the payroll elements, the retirement components, that's the value of our platform. Our goal is not to make just BenAdmin a simpler and better experience. It's making it that, but it's connecting the dots across a multitude of different transactions. So it's a fulsome experience for an employee because remember, our #1 objective as a company is to help employees keep them healthy and financially secure.

And to do that, you need to aggregate all the data and you need to be able to engage employees on a regular basis, and that has to be a beautiful, easy and simple experience. It has to be a consumer-grade experience. So the proof points of what you see now in the stats I just mentioned. And you're seeing the impact of that already in the 340 basis points of adjusted gross profit increase is largely because we need less people then. And it is a more technology-oriented capability. So I hope it's a long answer, but I hope I answered what you're looking for there.

[Operator]

Our next question comes from Heather Balsky of Bank of America.

[Unknown Analyst]

This is [indiscernible] on for Heather Balsky. I guess my first question would be, given where product revenue is now, how much visibility do you have into that? And how should we be thinking about that going into 2024 with the beginning the rollout of GE?

[Stephan Scholl, executive]

Yes. I mean I think we've all hit it here a little bit, which is -- and I'm not sure why it needs to be clarified so much based on what's out there. But the high-value segments of our business, which is the recurring business process as a service, so the BPaaS components, which show up in Employer Solutions is strong, and we feel really good about the high-quality book of business and that's what feeds us into not only finishing '23, but more importantly, for everybody as investors, they all want to understand, obviously, what's the midterm continue to look like. Our midterm guidance is strong because of that 26% BPaaS bookings, 22% BPaaS revenue growth.

The air pocket, if you want to call it anywhere, is $15 million of kind of lower value onetime business that is in segments that do not really have a lot of impact in the '24 through '26 midterm guidance. So even though some of that revenue shows up in Employer Solutions, it still is that onetime category within Employer Solutions versus the higher category recurring revenue. So that's what gives us the confidence in '24 and beyond.

[Unknown Analyst]

Okay. And then following up, how should we think about pricing given the new modules coming out semiannually? How should we think about pricing going into 2024?

[Jeremy Heaton, executive]

Sure. So from a pricing standpoint, so we are out to market with the model that we've talked about which has been well received and allows us to monetize as you think about the 2 rollouts of new technology from a product standpoint each year. So it gives us an ability to monetize that in. Of course, it will take time over the life of the renewal cycles that we have in the business for that to take hold.

But it is a part of what we see as we look in the midterm outlook, both on revenue and then how we think about that specific SKU level standardization, which is driving what you're seeing already today in some of the margin profile and then the expectations, although we haven't given guidance for next year of what we expect to see. So it's going very well and will continue to drive. But again, over a period of time for us.

[Operator]

Ladies and gentlemen, we have reached the end of question-and-answer session. I will now hand over to Stephan Scholl for his remarks.

[Stephan Scholl, executive]

Thanks, everybody. I really appreciate you all joining us today, and we look forward to building on our momentum and finishing the year strong. So I look forward to seeing you all in the future. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.